Foreign defence and military hardware companies will be elated over Finance Minister Arun Jaitley’s announcement of increase in FDI in defence manufacturing from the existing 26 per cent to 49 per cent with full Indian management and control. This will be through the FIPB route.

The allocation for the defence sector in the general budget has been raised by Rs. 5,000 crore to Rs. 2,29,000 crore. This includes a sum of Rs. 1,000 crore for accelerating the development of a strategic railway system in the border areas.

The capital outlay will be used to modernise all three wings of the Indian armed forces. The government also plans to streamline the defence procurement process to make it speedy and more efficient.

“India today is the largest buyer of defence equipment in the world. Our domestic manufacturing capacities are still at a nascent stage. We are buying a substantial part of our defence requirements directly from foreign players. Companies controlled by foreign governments and foreign private sector are supplying our defence requirements to us at a considerable outflow of foreign exchange. Currently, we permit 26 per cent FDI in defence manufacturing. The composite cap of foreign exchange is being raised to 49 per cent with full Indian management and control through the FIPB route,” Jaitley said in his budget speech.

In 2011, the erstwhile UPA government announced a separate fund to provide necessary resources to public and private sector companies, including SMEs and academic and scientific institutions, to support research and development of defence systems that enhanced cutting-edge technology capability. But, apparently, no action was taken beyond the announcement. The NDA government has now set aside an initial sum of Rs. 100 crore to set up a Technology Development Fund to support this objective.

The finance minister also announced setting up a war memorial, a war museum and a national police memorial.


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